Blockchain, the underlying technology behind cryptocurrencies and other digital investments represents a fundamental change for financial services and its continued rise is having a profound impact on investor’s needs. Driven by the volatile but undoubted success of cryptocurrencies, new eco systems are disrupting every aspect of financial services from payments and money transfer to investment banking and the IPO market.
Crypto’s progress has been volatile of course, but its growth in value is staggering. Bitcoins bought for $700 in 2016 were being sold in late 2021 for $56,000 each. No wonder then that banks and traditional institutional investors have had to adjust and react to deal with new developments.
According to figures published last summer by the UK’s Financial Conduct Authority, 2.3 million UK adults now hold crypto assets - up from 1.9 million in 2020 - while 78% are now aware of them. Attitudinal change is also evident with a year on year decline in the belief they are a gamble (47% in 2020 to 38% in 2021) and increasing numbers see them as either a complement or an alternative to mainstream investments.
It seems then, that what was seen as high risk a few years ago is now swiftly converging with mainstream finance. Examples of this include NatWest who recently announced an expansion of the bank’s use of distributed ledger technology to deliver credit and rates products to investors and issuers through digital channels and currencies. Mastercard have also just announced that the company is expanding its consulting services to help businesses and banks better understand the evolving digital asset and financial landscape.
And it’s not just the commercial sector – the UK Treasury and the Bank of England have been exploring the creation of a UK Central Bank Digital Currency (CBDC), which would potentially exist alongside cash and bank deposits. The EU are also planning their own digital currency with legislation expected to be confirmed in 2023.
As investor demand for digital investing accelerates beyond cryptos into other formats and diversification and innovation enables brands like Amazon to enter the market (they plan to launch their own crypto currency later this year), 2022 seems set to be a landmark one set to bring new challenges.
As their clients acquire more and more digitised assets including art, images, video, design etc, so banks and financial companies will need to swiftly make provision for them. This brave new world will come with its own set of unique challenges, and top of the list will be the need for solutions that can securely store and transact these assets.